Low Bidder Allowed to Correct Mistake After Bid Opening

Public bidding laws serve a dual purpose. The primary purpose is to benefit the public by enabling municipalities, public agencies or public authorities to obtain the best price for public improvement contracts through competitive bidding. The secondary purpose is to insure that contractors bidding on public projects are on an equal footing in competitive bidding. Actions or omissions which would place certain bidders at a disadvantage are to be avoided.

As a general rule, bidders must comply with the bid specifications. Public agencies may reject bids that fail to comply with the literal requirements of the bid specifications, such as the requirements for bid bonds or other collateral, pre-qualification of the bidder, or the timeliness of the bid. When a contractor who submits the lowest bid, and who is otherwise qualified to perform the contract, has failed to comply with technical requirements of the bid specifications, the public agency must balance the two purposes of the bidding laws. If the municipality rejects the low bid because of the non-compliance, the public may lose the benefit of the lower bid. If the municipality waives the non-compliance, it may be giving an advantage to the low bidder not enjoyed by the other bidders.

The dilemma faced by the public agency when it receives a bid that does not fully comply with the requirements of bid specifications is whether to reject the bid on the ground that the non-compliance is material or to accept the bid for the reason that the defect is a mere irregularity. As long as there is a rational basis for the public agency’s actions, courts almost invariably uphold the decision, provided that the decision is in the public interest and does not place other bidders at a competitive disadvantage.

In Matter of Arcon Construction & Management Services, Inc. v. County of Saratoga, Arcon Construction sought to annul a contract awarded by the County of Saratoga to Gross Electric, Inc. based on the County’s alleged violation of State competitive bidding laws.

Background

Both Arcon Construction and Gross Electric bid on electrical construction work at a water supply project. A preprinted bid form in the County’s bid package required the bidder to submit an amount on seven lines relating to various components of the work to be performed. An eighth line on the bid form contained a pre-printed “contingencies” amount of $300,000.00. The eight entries were then to be totaled and the resultant sum entered as the base bid.According to Gross, it sent a representative to the bid opening with a bid form that was only partially completed; that is, without an entry on line 3, and the total base bid line left blank. Prior to the bid deadline, Gross instructed the representative to enter the amount of $1,533,000.00 on line 3, and the amount of $3,974,000.00 as the total base bid. However, the $3,974,000.00 was only the sum of lines 1 through 7; it did not include the $300,000.00 contingency preprinted on line 8.

Rather than reject Gross’ bid based on the discrepancy, the County recalculated the bid based on what appeared to be an obvious mathematical error on Gross’ part, added the $300,000.00 contingency amount to the base bid amount of $3,974,000.00, making $4,274,000.00 the total base bid. This bid amount made Gross the second lowest bidder behind Arcon, who placed a bid at $4,249,300.00.

Prior to award of the contract to Arcon, Gross was notified that it was the second lowest bidder. In a letter to the County, Gross’ president stated that the $300,000.00 contingency had been included in the $1,533,000.00 placed on line 3, and that Gross’ bid was actually the $3,974,000.00 listed as the total base bid. Accepting Gross’ explanation at face value, the County decided that Gross, and not Arcon Construction, was the lowest bidder and awarded the contract to Gross.

Arcon set forth several arguments in an effort to have the contract annulled. As an initial point, Arcon noted that the language of the bid documents prohibited Gross from explaining its bid after opening of the bid. Arcon also argued that Gross, at best, was opportunistic and disingenuous in its after-the-fact explanation that the amount of the mandatory contingency fee was included in its line 3 entry, and at worst, intentionally designed its bid to give it an unfair advantage over other bidders. Finally, Arcon argued that the County’s communications with Gross, at a time when Gross appeared to be the second lowest bidder, were improper.

Decision

The Trial Court sided with the County, rejecting Arcon’s arguments and denying Arcon’s request to annul the contract. In doing so, the Court noted that a municipality may waive technical noncompliance with bid specifications if the defect is a mere irregularity or clerical mistake and it is in the best interests of a municipality to do so. As long as the County’s decision to waive the prohibition against explaining bids after the opening was rational, the Court stated that such a determination must be upheld. The Court held that the County’s decision to award the contract to Gross based on Gross’ post bid explanation, even though unsubstantiated by documentary evidence, was not irrational as a matter of law. The Court also noted that the burden was on Arcon to prove that the County improperly awarded the contract to Gross. With the evidence before it, the Court lacked sufficient proof to find that Gross designed its bid in such a way as to gain an unfair advantage over the other bidders. The Court also held that there was insufficient proof to hold that the County’s post bid communication with Gross constituted a post bid, pre-award, negotiation which tainted the bidding process to an extent that would warrant setting aside the contract award.

Comment

Where technical noncompliance with bid specifications exists, a municipality is vested with a great deal of discretion when determining what constitutes a mere irregularity. For the determination to withstand judicial challenge, only a rational basis for the decision must be shown. When the determination is coupled with the motivation to save taxpayer dollars, the decision by a municipality will rarely be overturned by the judicial system.

If you would like more information regarding this topic please contact Alexander A. Miuccio at